Editor's note: Looking back over 2008, there were some posts on ReadWriteWeb that did not get the attention we felt they deserved - whether because of timing, competing news stories, etc. So in this end-of-year series, called Redux, we're resurrecting some of those hidden gems. This is one of them, we hope you enjoy (re)reading it!

RVC Is a Different Asset Class from MVC

Real Venture Capital (RVC) is anything that takes a risk and works hard to create something fundamentally new. Many classic VC funds fall into this category. So do many angels. But I would also put entrepreneurs who bootstrap their ventures into this category. I would also even put Private Equity and Hedge Funds that do turnarounds and transformations.

This is very different from Momentum Venture Capital (MVC). The old asset class categories make less sense in this context. You get all kinds of MVC that would traditionally be called VC, Angel, Entrepreneur, Private Equity or Hedge Fund. But they are fundamentally different from Real VC. MVC jump on trends and amplify them. If they are lucky and smart, they get out in time. They are the bubble inflators. Their core competency is timing trends. They ride momentum.

In a downturn such as this, MVC get crushed. MVC that timed it well and got to cash are sitting pretty, playing golf, ready to jump in again when the cycle turns. But MVC left "holding the bag" at a time like this get crushed.

RVC is contrarian. They invest when most people are scared and sell when everybody is bullish. MVC is the opposite. Smart MVC invest when the trends are obvious and get out quick, the classic "flip artist". Dumb MVC invest when the trends are obvious and don't get out in time. But both smart and dumb MVC are primarily trend spotters.

Warren Buffet is the RVC Hero

Warren Buffet ignores Mr. Market and buys companies that generate lots of free cash flow. RVC build the kind of companies that Mr. Buffet would want to buy (which mean that anybody would want to buy and that you don't need to sell until the right buyer comes along).

Sure, But Safe??? Look At Alternatives

No asset class looks safe now. Remember that the objective is some cash after inflation, and inflation has certainly reared its ugly head again. Here are some of the usual assets that people turn to in difficult times. (In parentheses are the classic "Chicken Little" fear-mongering questions that you hear today).

1. Cash (in what Bank? After Inflation? In what currency?)
2. Money Markets (frozen assets in panic, no inflation protection)
3. Muni Bonds (what did Schawzenegger say about California needing emergency funds?)
4. Property, "safe as houses, right?" ('nuff said).
5. Oil (will drop if global economy slows)

I could go on and on. The point is that when nothing is safe, the risk/reward of investing in a new business that you really understand, with people you trust, suddenly looks less out there on the risk curve.

The Playing Field Just Tilted to the Little Guy

This is what we wrote about yesterday related to SaaS and traditional IT vendors.

That may be part of a bigger historical shift of power from BigCo to SmallCo, reversing what happened in the last 50 years when the share of the US GDP controlled by Fortune 500 went from 1/3 to 2/3. Coase's Law and the reduction in transaction friction created by the Internet are the theoretical underpinning of this shift.

This historic shift makes it safer to build disruptive innovation from scratch than defend an incumbent position. To put it more simply, today it is better to be a Barbarian than a Roman.

In short, it is time for Real VC to be bold. Some will be bold. Some won't. Enough will be bold for this to work out just fine.

Image credit: Thomas Hawk